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Wednesday, 16 September 1987
Page: 151

Mr KEATING (Treasurer)(3.14) —I recall being in opposition in 1976 when the Australian Labor Party had lost the election, and following a period of great fiscal deterioration. I recall its spokesperson standing in the Parliament, arguing a case about fiscal and monetary economic policy and having not a shred of credibility. That is the position of the Opposition and of the honourable member for Kooyong (Mr Peacock). If he wants to draw to himself some recognition that his views have justice or validity, he should do so by wiping the slate clean on the manic policy that he and his Leader were associated with in the election campaign. That policy, a crude attempt to buy votes, was fashioned by the honourable member for Bennelong (Mr Howard) who said, `This is my chance to be Prime Minister. I am going to run for the wire and hang the consequences'. The fact that the resultant blow-out in fiscal policy would have destroyed the country's recovery and put us up for grabs was the price that he was prepared to pay to make himself Prime Minister. Fortunately for this country, the people saw through that and rejected it. Last week, the honourable member for Kooyong tried to distance himself from that policy. He said:

I recognise if you cut taxes, immediately you will lift the propensity to save but you will also increase the potential for imports to rise substantially.

Now I won't mind so much if those imports are going into investment and you are increasing your capital stock but you don't have altogether much control over that.

Dead right! He went on to say:

We were intending to begin the tax cuts in February if we won the election and then found them over a lengthy period of time.

I would be re-examining the funding element of the tax cuts and their introduction. It's not just a matter of credibility, it's a matter of sensible economics.

Well, too right it is. He was correct to imply that the Opposition's policy in the election campaign was an economic disgrace and a piece of economic vandalism from which he began to repair, but he was pulled into line by his Leader, and he made a statement about a day or two later saying that that was not really what he meant. The fact of the matter is that he is now standing up and talking about funding consumption expenditure in this Budget. Minus 2.5 per cent real growth in outlays, a zero deficit and he is talking about financing consumption expenditure in this Budget. He ran with his Leader in an election campaign on tax cuts unfunded, which would have produced for this year a Budget deficit of $6 billion; that is $2.5 billion on top of the forecast $3.5 billion from last year. It is some $6,000m compared to zero and he says that he is worried about consumption expenditure.

If the honourable gentleman is worried, he should get his little mate there and tell him the facts of life about economic policy. He has lost that knowledge since he left the Treasury in 1982. The honourable gentleman should tell his friend what a shocking, irresponsible, squalid policy this was and is, and how if we had had it in this country, the country would have had it, with a massive surge in imports and a massive deterioration in our current account deficit. If the honourable gentleman is worried about these things he should start at home and remedy the problem there rather than trying to give the Government a lecture.

The honourable gentleman's argument is inconsistent. A few minutes ago he was talking about funding consumption expenditure and what a terrible thing that was, but at the same time he criticised the high interest rates that were employed to dampen that demand all through the last financial year. High interest rates are bad, but the honourable member cavils at them while at the same time complaining about consumption expenditure. Yet the high interest rates were tailored to diminish consumption expenditure. The honourable gentleman seems to want to have it both ways.

The one thing that comes through in this matter of public importance is my friend, the honourable member for Kooyong, after all these years both in government and in opposition, talking about the trading goods sector of the economy. Should not the penny have dropped before, when the honourable gentleman spent all those years in that useless Cabinet with the former Government, when the oil prices set by the Arab states rocketed and their wealth rose? The penny should have dropped when our oil and coal prices went with that, but we never saw the commensurate lift in wealth here. Why was that? It was because the Government had the exchange rate overvalued. It was a managed exchange rate. It was not worried about the traded goods sector. In fact, in those days the former Secretary to the Treasury said that we needed more imports because otherwise we would be embarrassed by an appreciating exchange rate. The Government was not worried about the traded goods sector or the factories. It decimated manufacturing in Australia. It wiped it out. The Government said that commodities would do us. Resources boomed, there was the water resources project and the infrastructure program. That was the great El Dorado of which the honourable member was a part. He was a senior Minister. He was there. Now, he has discovered the traded goods sector.

The honourable gentleman is also into the capital stock. I will tell honourable members about the capital stock. The decline in that sector is one of the most sorry stories of any country. In this country the decline started in 1955 or 1956 and went on until 1985-86-all down hill. Should not the penny have dropped among any of the members opposite? Should they not have worried about the decline of the capital stock and wondered how they could lift the productive base when the equipment base was falling to bits? Should they not have done something about it? Should they not have got the balance right and lifted the profitability of the traded goods sector? What are we doing being run by the damn National Party all the time with its foolish preoccupations about what it saw to be the interests of the farm sector, although it butchered farmers with the overvalued exchange rate all those years? I can remember the late Phil Lynch's list, coming out with a big project starting up around the country. That was Liberal Party policy.

Now, the honourable member for Kooyong is concerned about capital cost and consumption expenditure. He says the economy is going nowhere. I can tell him where the economy is going. It is reducing dependence on overseas debt. It is reducing the current account deficit. Those opposite left us horribly exposed. I remind them that the current account deficit in 1980-81 was 6.1 per cent of gross domestic product (GDP), when there were much better terms of trade than we enjoy today. What caused that deficit? It was due to the failure of structural policy under coalition governance-in the Liberal Party of Australia in particular. It seemed to repair temporarily in 1982-83 and 1983-84 under the weight of the massive recession. But as soon as demand popped out, out it popped again. When the terms of trade collapsed, it jumped right out.

In table 10 of the Budget Papers honourable members will see that three years of net exports, as a result of this Government's policy to float the exchange rate, make the wage system competitive and change fiscal policy, has improved in a structural way the current account deficit by $6.6 billion. That sum is not all reflected in the balance of payments because the terms of trade have eroded it. But the underlying change in volumes is worth $6.6 billion. That is what this Government has done about Australia's capacity to repair from this position. It has done it by taking speedy and swift action on fiscal, wage and monetary settings.

We really do not need the honourable member for Kooyong to come in and say certain things. I do not cavil or remark about his enthusiasm for his new portfolio, but it all rings pretty hollow because the Leader of the Opposition says, `My policies were right'. The honourable member for Bennelong was a one-shot chance for the prime ministership for the Liberals. He missed. The fact is that he is prepared to punt up the lot, wreck the place to get there, and then try to repair afterwards. If he had been in the position to present a Liberal Budget, he would be now trying to say how he would repair with tax cuts and everything else from the position he had created. He ran with the old 1950s and 1960s philosophy of Ash Street-that is, to regard all the people out there as suckers and mugs, run to the line dropping dollars all the way, and the suckers will take the bait. Well the `suckers' did not; they took the quality instead. They left him. It will not take Opposition members long, if they survey the empty green leather seats on the other side, to work out that they lost and that they will keep losing until they realise that they must get some structure and discipline into their thoughts. They have never had it.

Those opposite won government easily in 1949. They picked up all the easy days of post-war growth and bludged their way through until the end of the 1970s until they ruined the country. They are sitting back on the other side of the House like the born-to-rule brigade-except, as I have said before, we think we are born to rule them, and we are right. They think they are born to rule-`No need for any policy. A few flash words; drop a couple of Press releases'-skating down to the wire-`Journos? Don't worry about them, tell them nothing'--

Mr N.A. Brown —There are a few antique clocks around.

Mr KEATING —Yes, I have a Paris obsession too. We know that it was the express policy of the honourable member for Bennelong not to unveil his fiscal policy-his tax changes. All through the last Parliament he said to the Prime Minister (Mr Hawke): `We will see about tax. We will see who runs to the wire on tax'. Well, we did see, did we not? And we will see more. It was all very clever-dick stuff-`Tell them nothing. Fob the journos off. Treat them like mugs at the Press conferences. Dodge the questions'. It shows the Ash Street view; that he could slip and slide around, and dart between people right up to election day-and not have to declare a policy. Well, the only problem is that there was a pick-axe right between the shoulders from the public, who said: `No, thank you very much: this Government is taking us out of all this and we do not want to go back'.

Before the honourable member for Kooyong tries to take a rise out of this Government he has to change the basic philosophy. He must understand that when this Government floated the exchange rate it took a lot of the power in this economy that was abused by coalition Cabinets and gave it to the markets. The Government gave this power to the markets basically because the leadership of this Government does not trust the long-run deterioration in the political process, particularly in the hands of coalition governments. We have put much of that power to the market and it will put a stick across the back of anybody, Liberal or Labor, who is not prepared in the future to face the disciplines.

In the past, over the Monday morning cup of tea, the gang of three set the exchange rate. Can honourable members imagine anything more ridiculous than three people having a cup of tea and a scone at 9 a.m. on Monday and deciding at what price we will buy American dollars or the rate at which we will exchange dollars for pounds. Is it any wonder that we had an uncompetitive economy? This was macroeconomics Liberal Party style. We are now supposed to say, `Well, Andrew is here. He has some views. What are we to do about that?'. I will tell honourable members what we will do about that. Essentially we will ignore it until those opposite do something.

The honourable member for Kooyong, in his briefing from my former Treasury advisers, has been told about productivity. He says, `Today I cornered you on this question of productivity. You have a 4 per cent productivity case in the economy but not 4 per cent in the forecast'. I made the point about the implications of productivity and employment. I should have thought the point was understood but apparently it was not. I make the point again. The 4 per cent award has not been paid. At this stage probably about 6 per cent or 7 per cent of the work force has gained the 4 per cent rise. This is coming through very slowly and will appear in the measurement of productivity somewhat slowly. But we never assumed that there would be a full offset for productivity in year one. It will accrue as we move on and as the pace of the 4 per cent wage movement comes through. That is why the numbers in the Budget square with what is happening out there. But there are compositional difficulties in measuring productivity in the service sector of the economy, in the Australian Public Service and elsewhere.

Consumption spending-the 1.5 per cent real increase-involves 1 3/4 per cent for gross national expenditure (GNE), of which the fastest growing component is investment. If we abstract the investment and dwellings, private consumption expenditure is running at about 1 per cent. Growth is at 2 3/4 per cent. Growth of 2 3/4 per cent is sustainable in this environment because one percentage point is coming from net exports, from the very thing we need to turn the current account around. The demand components are 1 3/4 per cent for GNE. If we abstract investment out of that we are back to about 1 per cent, which is a very modest figure compared with the long run of 2.6 per cent and the Organisation for Economic Co-operation and Development (OECD) average of about the same. We could never have kept household disposable incomes at the levels they were at last year. They had to rise. They are rising now in an environment which can accommodate them.

I say in conclusion that when the Liberal Party gets its conceptual act together and realises what it has to do to be a government and gets a decent policy, then we will take notice of what the honourable member for Kooyong has to say.

Mr DEPUTY SPEAKER (Mr Leo McLeay) —Order! The honourable member's time has expired.